Q3 2017 - DOF Group Sub/IR/2017/DOF Subsea Quarterly Finan… · DOF SUBSEA| Financial Report Q3 2017 5 NOK million 3Q 2017 3Q 2016 Change % Operating income 899 1 132 -21% EBITDA

financial report

Q3 2017

DOF Subsea ASThormøhlens gate 53 C5006 BergenNORWAYwww.dofsubsea.com

Index

Financial Report 3rd quarter 2017 . . . . . . . . . . . . . . . . . . .4

Financial statements 3rd quarter 2017 . . . . . . . . . . . . . . .8

Consolidated statement of comprehensive income . . . . . . . . . . . 8

Consolidated statement of financial position . . . . . . . . . . . . . . . . . . 9

Consolidated statement of financial position . . . . . . . . . . . . . . . . 10

Consolidated statement of cash flows. . . . . . . . . . . . . . . . . . . . . . . . 11

Consolidated statement of changes in equity . . . . . . . . . . . . . . . . 12

Notes to the financial statements . . . . . . . . . . . . . . . . . . 14

Note 1 Management reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Note 2 Segment information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Note 3 Financial income and expenses . . . . . . . . . . . . . . . . . . . . . . . 17

Note 4 Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Note 5 Net interest-bearing debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Note 6 Financial instruments and hedging activities . . . . . . . . 20

Note 7 Transactions with related parties . . . . . . . . . . . . . . . . . . . . . 21

Note 8 Investments in associates and joint ventures. . . . . . . . 21

Note 9 Events after the consolidated statement of financial position date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Note 10 Shareholder information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Note 11 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Note 12 Performance measurement definitions. . . . . . . . . . . . . 24

Supplemental information . . . . . . . . . . . . . . . . . . . . . . . . . 26

Condensed statement of comprehensive income 5 last quarters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Condensed statement of financial position 5 last quarters. 27

Key figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Financial Report Q3 2017 | DOF SUBSEA

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HeadlinesFor the first nine months of 2017, the DOF Subsea Group had an operating income of NOK 2 781 million, an operating profit before depreciation of NOK 843 million and an operating profit of NOK 45 million after depreciation and impairment of NOK 798 million. Net financial income was NOK 46 million giving a profit before tax of NOK 91 million.

In the 3rd quarter of 2017, the Group had an operating income of NOK 899 million (NOK 1 132 million in the 3rd quarter of 2016) with an operating profit before depreciation of NOK 285 million (NOK 396 million). The operating profit was negative NOK 41 million (positive NOK 62 million) after depreciation and impairment of NOK 326 million (NOK 334 million). The net financial income was NOK 168 million (NOK 129 million), and the profit before tax was NOK 127 million (NOK 191 million).

Key figures (NOK million) 3Q 2017 3Q 2016 YTD 2017 YTD 2016

Operating income 899 1 132 2 781 4 098

EBITDA 285 396 843 1 379

EBIT -41 62 45 436

Net interest-bearing debt 8 477 8 864 8 477 8 864

EBITDA proportional method 332 447 1 005 1 487

In the 3rd quarter the Group has seen lower activity in the APAC region with delayed start-up of projects and low uti-lisation of both personnel and assets. In the North America region, the activity gradually increased during the quarter. The general market conditions within our industry are still challenging, however in line with the rebound in the oil price the tendering activity has increased during the quarter for projects with start-up in 2018 and 2019.

During the quarter, the Group has seen weak performance and low vessel utilisation in the Subsea/IMR Projects segment. In the beginning of 3rd quarter, Skandi Constructor was in transit from Singapore to the North Sea and Geosea was in transit from Brazil to the North Sea. During the quarter Geoholm finalised the upgrade and modification and commenced a new contract with TechnipFMC. Skandi Singapore and Skandi Hercules, operating in the APAC region, had low utilisation in the quarter due to delayed start-up of projects and idle time between projects. In general, the idle time between projects has increased, however the Group saw increased project activity toward the end of the quarter. The vessel utilisation in the 3rd quarter was 74%, where the Long-term Chartering utilisation was 86% and the Subsea/IMR Projects utilisation was 70%.

Operational events 3rd quarterAs at 30 September 2017, the number of subsea employees was 1 287, and the Group’s fleet comprised 22 owned vessels,

2 chartered-in vessels and 2 newbuilds under construction, plus a fleet of 71 ROVs.

During the 3rd quarter, the Asia Pacific region has conducted IMR work for Shell Philippines, Woodside, Chevron, TechnipFMC and McDermott/Inpex in Australia and PTTEP in Thailand. In Australia, the Group finalised the saturation diving campaign for McDermott/Inpex on the Ichthys field. In the Atlantic region, the Group has executed engineering, survey, light construction and installation work for Eni Angola, Conoco Phillips, TMPC, Dana Petroleum and HMC.

In the North America region, the Group has conducted IMR work for Husky Energy, Anardarko, Petrofac, Williams and Suncor and survey and positioning work for HMC. In Brazil, the Group has been engaged in ROV inspection work for Petrobras. In addition, the joint venture with TechnipFMC has provided pipelay services for Petrobras.

During the quarter, the Group has been awarded several short-term contracts in the Subsea/IMR Projects segment where the award of the Lamson FPSO midwater arch- and riser replacement contract was a highlight. In the Atlantic region Fugro extended the time charter contract for Skandi Carla from July 2017 until the end of October 2019, and Skandi Constructor was awarded a contract by Siemens on the Galloper Offshore Wind Farm securing utilisation until the end of the year. In Brazil, Petrobras extended the con-tract for Skandi Salvador by 6 months from August 2017. In the North America region Skandi Vinland commenced the 10-year IMR contract with Husky Energy in Canada, and Skandi Achiever was awarded diving contracts in Mexico and Trinidad.

Utilisation 3Q 2017 2Q 2017 1Q 2017 4Q 2016 3Q 2016

Long-term Chartering 86% 83% 85% 95% 93%

Subsea/IMR Projects 70% 58% 57% 66% 71%

Fleet 74% 66% 65% 75% 78%

Consolidated statement of comprehensive income and consolidated statement of financial positionIn the 3rd quarter of 2017, the Group achieved an operating income of NOK 899 million compared to an operating income of NOK 1 132 million in the 3rd quarter of 2016. Operating profit before depreciation (EBITDA) was NOK 285 million (NOK 396 million in 2016). The operating profit after depreciation and impairment (EBIT) was negative NOK 41 million (positive NOK 62 million). Depreciation and impairment amounted to NOK 326 million (NOK 334 million).

Financial Report 3rd quarter 2017

| Financial Report Q3 2017DOF SUBSEA

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NOK million 3Q 2017 3Q 2016 Change %

Operating income 899 1 132 -21%

EBITDA 285 396 -28%

EBIT -41 62 -166%

Net financial income was NOK 168 million (NOK 129 mil-lion), where NOK 262 million (NOK 225 million) was unrealised net gain on derivative instruments and currency positions. The profit before tax was NOK 127 million (NOK 191 million), and the profit for the period was NOK 138 million (NOK 170 million).

The Group’s total assets were NOK 16 786 million (NOK 17 661 million), where non-current assets amounted to NOK 14 650 million (NOK 15 259 million), including NOK 729 million (NOK 647 million) in intangible assets. Current assets were NOK 2 136 million (NOK 2 402 million), of which NOK 1 097 million (NOK 1 137 million) was cash and cash equivalents.

NOK million 30 .09 .2017 30 .09 .2016 Change %

Total assets 16 786 17 661 -5%

Tangible assets 11 888 12 918 -8%

Cash and cash equivalents 1 097 1 137 -4%

NIBD 8 477 8 864 -4%

Total equity 6 156 6 437 -4%

The total equity was NOK 6 156 million (NOK 6 437 million), including non-controlling interests of NOK 226 million (NOK 222 million). Non-current liabilities were NOK 8 090 million (NOK 8 944 million). Current liabilities were NOK 2 540 million (NOK 2 280 million), of which NOK 1 690 million (NOK 1 396 million) was current portion of debt. The Group’s total equity and liabilities were NOK 16 786 million (NOK 17 661 million). The net interest-bearing debt (NIBD) was NOK 8 477 million (NOK 8 864 million). At the end of September, the book equity ratio was 37%, and the value-adjusted equity ratio was 40%. The value-adjusted equity ratio is calculated by adjusting the book equity and total assets by excess values on all owned vessels in the Group.

Cash and cash equivalents have changed due to operating, investing and financing activities. Net cash flow from operating activities in the 3rd quarter was NOK 111 million (NOK 350 million). Cash flow from investing activities was NOK -70 million (NOK -40 million), of which NOK -49 million (NOK -29 million) was from investment in assets that increases or will increase capacity for the Group. Cash flow from financing activities was NOK -231 million (NOK -242 million) of which NOK -231 million

(NOK -242 million) was instalments and repayments on long-term interest-bearing debt. At the end of the 3rd quarter, the Group’s cash and cash equivalents were NOK 1 097 million (NOK 1 137 million).

Debt, financing and liquidityThe Group’s current portion of debt at the end of September was NOK 1 690 million, including balloons, bond, drawn credit facilities and ordinary instalments.

The current weak market conditions have increased the risk for impairment of the Group’s non-current assets and put pressure on the Group’s liquidity position.

Financial riskThe Group’s operating income is in NOK, USD, AUD, GBP, CAD and BRL, while the Group’s loans are distrib-uted between NOK, USD and CAD. This exposes the Group to the risk of exchange rate fluctuations. The Group has an active exchange rate policy and uses de-rivatives to hedge the exchange rate exposure.

The Group is exposed to fluctuations in interest rates. Part of the Group’s loans has fixed interest rates, reducing the exposure. The Group has an active interest rate policy and uses derivatives to hedge the interest rate exposure.

ShareholdersThe shares in DOF Subsea AS are owned by DOF ASA (51%), FRC Lux Holding Limited (42.7%) and Dolphin Invest 2 AS (6.3%). The number of outstanding shares is 119 733 714, with a book equity of NOK 51.41 per share.

EmployeesAt the end of 3rd quarter, the number of employees in the Group was 1 287. The number does not include ma-rine employees that are employed in DOF Management and Norskan and hired in through shipman agreements to operate the vessels.


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The FleetAs at end of September, the Group’s fleet comprised 22 owned vessels, 2 chartered-in vessels and 2 vessels under construction in the joint venture with TechnipFMC.

The BacklogAs at end of September, the firm contract backlog amounts to NOK 16.3 billion, and including options NOK 34.3 billion. However, the Group is exposed to the short-term market conditions in the Subsea/IMR Projects segment. In this segment the management is working to increase the backlog and improve the utilisation of personnel and assets.

In May the Group increased its ownership in Canadian Subsea Shipping Company AS. In the third quarter this company has been merged with DOF Installer ASA.

Contract Backlog*

* Contract backlog excludes master service agreements (MSAs) within the subsea/

IRM project segment. Under the MSAs only confirmed POs are accounted for.

Events after the concolidated statement of financial position dateIn October, DOF Subsea announced that Raymond P. Semple has been appointed as Chief Operating Officer (COO) for DOF Subsea.

In the Atlantic region, Skandi Neptune was awarded a contract to work on an offsore wind farm, securing 60 days of utilisation plus options in Q4.

The North America region was awarded a contract for the provision of survey, ROV and vessel services in the Gulf of Mexico, securing 135 days of vessel utilisation in Q4 2017 and Q1 2018 for Harvey Deep Sea and Skandi Achiever.

In October Skandi Darwin commenced its charter contract with the Asia Pacific region, and she will commence the Shell Prelude IMR project in Australia ultimo November.

Forward looking statementThe Board of Directors is satisfied with the Group’s HSE performance, but the financial numbers for 3rd quarter of 2017 are below the Board of Directors’ expectations, especially in the Asia Pacific region.

The Board of Directors expects the challenging market conditions to continue and expects the market to be challenging in 2018, especially during the first half of the year. However, with an oil price of USD 60 per barrel, the Board of Directors sees that the oil producers have increased their tendering activity which may indicate that we can expect the subsea market to gradually improve and give higher utilisation for the Group’s personnel and assets. The Board of Directors sees that the continuous challenging market will lead to a pressure on the Group’s liquidity position. The cost cutting measures taken so far in the Group have been needed, and the Board of Directors and the Management have a strong focus on continuously adjusting the Group’s capacity and risk exposure to the market conditions going forward.

Bergen, 14 November 2017The Board of Directors of DOF Subsea AS

Contact information:Mons S. Aase, CEO +47 916 61 012Marianne Møgster +47 993 06 916

DOF Subsea ASThormølens gate 53 C5006 Bergen www.dofsubsea.com


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Amounts in NOK million

Financial statements 3rd quarter 2017

Consolidated statement of comprehensive income

Note 3Q 2017 3Q 2016 YTD 2017 YTD 2016 2016

Operating income 1, 2 899 1 132 2 781 4 098 5 099

Payroll expenses -360 -394 -1 051 -1 236 -1 611

Other operating expenses -365 -370 -1 130 -1 640 -2 047

Share of net income of associates and joint ventures 1, 8 110 29 248 84 154

Profit from sale of non-current assets - - -5 73 170

Operating profit before depreciation (EBITDA) 1, 2 285 396 843 1 379 1 764

Depreciation and impairment 4 -326 -334 -798 -944 -1 318

Operating profit (EBIT) -41 62 45 436 446

Financial income 3 6 5 41 39 59

Financial expenses 3 -124 -113 -389 -385 -530

Realised net gain / loss on derivative instruments and currency position 3 24 12 -88 -83 -181

Unrealised net gain / loss on derivative instruments and currency position 3 262 225 482 666 473

Net financial income / loss 168 129 46 238 -179

Profit / loss before tax 127 191 91 673 266

Income tax expense 11 -21 11 -88 -111

Profit / loss for the period 138 170 102 585 155

Other comprehensive income net of tax

Items that may be subsequently reclassified to profit / loss

Currency translation difference (CTA) 7 -35 -24 -33 -

Share of other comprehensive income of associates and joint ventures 8 -35 -28 -54 218 231

Other comprehensive income / loss net of tax -28 -63 -78 185 231

Total comprehensive income / loss for the period net of tax 110 107 24 770 386

Total comprehensive income / loss attributable to:

Non-controlling interests 1 -6 1 -21 -21

Owners of the parents 109 113 23 791 407


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Consolidated statement of financial position

Assets Note 30 .09 .2017 30 .09 .2016 31 .12 .2016

Tangible assets 4 11 888 12 918 11 950

Goodwill 363 381 373

Deferred tax asset 367 266 269

Investment in associates and joint ventures 1, 8 918 637 717

Non-current receivables 6 1 115 1 056 1 169

Non-current assets 14 650 15 259 14 479

Trade receivables 714 780 791

Other current receivables 6 326 486 317

Total current receivables 1 040 1 265 1 108

Restricted cash 295 305 305

Unrestricted cash and cash equivalents 801 831 757

Cash and cash equivalents 5 1 097 1 137 1 062

Current assets 2 136 2 402 2 170

Total assets 16 786 17 661 16 648


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Equity and liabilities Note 30 .09 .2017 30 .09 .2016 31 .12 .2016

Paid-in equity 10 3 844 3 844 3 844

Other equity 2 086 2 370 1 987

Non-controlling interests 226 222 224

Total equity 6 156 6 437 6 055

Bond loans 5 1 368 1 296 1 297

Debt to credit institutions 5 6 670 7 519 7 208

Financial non-current derivatives 6 24 98 98

Other non-current liabilities 28 31 29

Non-current liabilities 8 090 8 944 8 632

Current portion of debt 5 1 690 1 396 1 114

Trade payables 402 510 500

Other current liabilities 6 449 374 347

Current liabilities 2 540 2 280 1 961

Total liabilities 10 630 11 224 10 594

Total equity and liabilities 16 786 17 661 16 648



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Consolidated statement of cash flows

Note 3Q 2017 3Q 2016 YTD 2017 YTD 2016 2016

Operating profit (EBIT) -41 62 45 436 446

Depreciation and impairment 4 326 334 798 944 1 318

Profit from sale of non-current assets - - 5 -73 -170

Share of net income of associates and joint ventures 1, 8 -110 -29 -248 -84 -154

Change in trade receivables -52 423 77 372 361

Change in trade payables -7 -294 -98 -329 -339

Changes in other working capital 136 -32 138 56 21

Exchange rate effect on operating activities -16 7 -59 -79 -62

Cash flow from operating activities 236 472 659 1 243 1 423

Interest received 2 2 25 28 30

Interest paid -135 -110 -380 -399 -553

Tax paid 8 -14 -18 -39 -40

Net cash flow from operating activities 111 350 286 832 859

Sale of tangible assets - - -2 551 1 489

Purchase of tangible assets 4 -49 -29 -588 -294 -479

Purchase of shares - -2 -9 -2 -

Dividends received - - - 3 3

Net cash flows from other non-current receivables -21 -9 -74 -254 -249

Cash flow from investing activities -70 -40 -673 4 763

Proceeds of interest-bearing debt - -687 1 976 319 319

Instalments on interest-bearing debt -231 444 -1 569 -1 410 -2 279

Payments to non-controlling interests - - -26 -24

Cash flow from financing activities -231 -242 407 -1 116 -1 983

Net change in cash and cash equivalents -190 68 20 -280 -361

Cash and cash equivalents at the beginning of period 1 285 1 085 1 062 1 464 1 464

Cash and cash equivalents from merger and acquisition - - 27 - -

Exchange rate effect on cash and cash equivalents 2 -16 -13 -47 -41

Cash and cash equivalents at the end of the period 1 097 1 137 1 097 1 137 1 062

In 1st and 2nd quarter 2016 the finance transaction was presented gross, with NOK 800 million as Proceeds of interest-bearing debt, and NOK 687 million as Instalments on interest-bearing debt. Cash flow from financing activities in 2016 of NOK 242 million are all related to instalments on inter-est-bearing debt.


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Consolidated statement of changes in equity

Share

capital

Share

premium

Other paid-in capital

Retained earnings

Currency translation

differences

Total

Non- controlling

interests

Total

equity

Equity at 01 .01 .2017 1 197 516 2 130 1 906 81 5 830 224 6 055

Profit / loss for the period - - - 100 - 100 2 102

Other comprehensive income for the period - - - -54 -24 -78 -1 -79

Total comprehensive income for the period - - - 46 -24 22 1 23

Merger DOF Subsea Holding AS - - - 79 - 79 - 79

Changes in non-controlling interests - - - - - - - -

Equity at 30 .09 .2017 1 197 516 2 130 2 031 56 5 931 225 6 156

Equity at 01 .01 .2016 1 197 516 2 130 1 498 81 5 422 269 5 692

Profit / loss for the period - - - 606 - 606 -21 585

Other comprehensive income for the period - - - 218 -33 185 - 185

Total comprehensive income for the period - - - 824 -33 791 -21 770

Changes in non-controlling interests - - - - - - -26 -26

Equity at 30 .09 .2016 1 197 516 2 130 2 324 46 6 213 222 6 437

A reverse merger was executed during 2nd quarter, effective from 1 January 2017, between DOF Subsea AS and DOF Subsea Holding AS. This resulted in DOF Subsea Holding AS being absorbed into DOF Subsea AS. DOF Subsea Holding AS had no operating activity, only asset was shares in DOF Subsea AS.


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Notes to the financial statements

Note 1 Management reporting

The Group uses the proportionate consolidation method when accounting for joint ventures in management reporting. Porportional consolidation method is used to better reflect the operating performance for vessels in the JV. In the first 9 months of 2017 the joint venture has 4 PLSVs in operation and 2 PLSVs under construction.

The table below shows the effect of proportional consolidation method used in management reporting.

YTD 2017Consistent with

management reportingReconciliation

to equity method YTD 2017

Operating income 3 275 -494 2 781

Payroll expenses -1 061 10 -1 051

Other operating expenses -1 211 81 -1 130

Share of net income of associates and joint ventures 7 242 248

Profit from sale of non-current assets -5 - -5

Operating profit before depreciation (EBITDA) 1 005 -162 843

Depreciation and impairment -873 75 -798

Operating profit (EBIT) 132 -87 45

Financial income 22 19 41

Financial expenses -457 68 -389

Realised net gain / loss on derivative instruments and currency position -87 -1 -88

Unrealised net gain / loss on derivative instruments and currency position 478 4 482

Net financial income / loss -44 90 46

Profit / loss before tax 89 3 91

Income tax expense 14 -3 11

Profit / loss for the period 102 - 102


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Note 1 Management reporting (continued from previous page)


30 .09 .2017Consistent with


to equity method 30 .09 .2017

Intangible assets 794 -65 729

Tangible assets 16 365 -4 477 11 888

Financial assets 768 1 265 2 033

Non-current assets 17 926 -3 276 14 650

Current assets including assets held for sale 2 501 -365 2 136

Total assets 20 427 -3641 16 786





Total equity 6 156 - 6 156

Non-current liabilities 11 220 -3 130 8 090

Current liabilities including liabilities held for sale 3 051 -511 2 540

Total liabilities 14 271 -3 641 10 630

Total equity and liabilities 20 427 -3 641 16 786

Consolidated statement of cash flows




Net cash flow from operating activities 540 -254 286

Cash flow from investing activities -1 011 338 -673

Cash flow from financing activities 484 -77 407

Net change in cash and cash equivalents 13 7 20

Cash and cash equivalent at the beinning of the period 1 189 -127 1 062

Effect of merger and acquisition 27 - 27

Exchange rate effect on cash and cash equivalents -20 7 -13

Cash and Cash equivalents at the end of the period 1 208 -111 1 097


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Note 2 Segment information

The Group applies the equity method to account for joint ventures, as required by IFRS 11. The segment reporting below is presented according to internal management reporting, based on the proportionate consolidation method of accounting for joint ventures, see note 1. The bridge between management reporting and the figures reported in the financial statements is presented below.

Presentation of segments includes information that is reported to the chief operating decision-makers on a regular basis. Corporate expenses and similar are allocated to the segments proportionately based on the estimated split of services delivered to each segment.

From 2nd quarter 2017 the Group has changed its composition of segments. More information about the changes is given below. Previous reported segment information is restated for presentation purpose.

*The split of Operating Income between Long-term Chartering and Subsea/IMR projects as of 2nd quarter 2017 has been reclassified in YTD 2017. For presentation purposes, YTD 2016 and FY 2016 have been restated accordingly.

The Group has changed the way it organises and operates its two segments. At the same time, naming of the segments has been changed to better reflect the underlying operations. The Subsea Projects segment has changed name to Subsea/IMR Projects, and Chartering of vessels segment has changed name to Long-term Chartering. After this change the Group’s business is divided into two business segments: Subsea/IMR Projects and Long-term Chartering.

Long-term Chartering segment is a change to a clearer profile towards long-term chartering contracts compared to how the old segment, Chartering of vessels segment, was organised. To reflect this, the Chartering of vessels segment has changed name to Long-term Chartering. As a result of these changes, 3 vessels have been transferred from the Chartering of vessels segment to the Subsea/IMR Projects segment.

The Subsea/IMR Projects segment covers operations in four regions; the Asia Pacific Region, the Atlantic Region, the North America Region and the Brazilian region. In the Subsea/IMR Projects segment, the vessels and equipment are utilised on a global basis.

The Group has gradually built up the Subsea/IMR Projects segment and has become a global provider of subsea services with a core focus on IMR. Within IMR, the Group has been awarded several long-term contracts over the last couple of years, among others the 7-year contract with Shell Philippines Exploration B.V., the 3-year contract with Chevron Australia Pty Ltd, the 5-year contract with Shell Australia Pty Ltd and the 10-year contract with Husky Oil Operations Limited in Canada. In addition to the IMR market, the Subsea/IMR Projects segment has focused on mooring and survey work utilising the Group’s core competences and assets.

The Long-term Chartering segment covers letting of vessels to third-party charterers and is managed through the Group’s associated company, DOF Management AS, and the Company’s sister company Norskan Offshore Ltda. The Subsea/IMR Projects segment is the Group’s largest segment, accounting for 81% of the Group’s total revenues for the year ended 31 December 2016.

The Long-term Chartering segment is built on DOF Subsea’s long standing as an internationally recognised vessel owner and operator of high-end subsea vessels. Typical clients of the Group’s Long-term Chartering services are, inter alia, Total, Petrobras, TechnipFMC and Subsea 7.

Operating income consistent with management reporting*

3Q 2017

3Q 2016

YTD 2017

YTD 2016

2016

Long-term chartering 366 282 1 025 732 1 041

Subsea/IMR projects 727 950 2 250 3 566 4 386

Total consistent with management reporting 1 093 1 232 3 275 4 298 5 426

Reconciliation to equity method -194 -100 -494 -200 -327

Total 899 1 132 2 781 4 098 5 099

EBITDA consistent with management reporting

Long-term chartering 282 231 784 678 1 013

Subsea/IMR projects 50 216 221 808 888

Total consistent with management reporting 332 447 1 005 1 487 1 901

Reconciliation to equity method -47 -51 -162 -108 -137

Total 285 396 843 1 379 1 764


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Note 3 Financial income and expenses

3Q 2017 3Q 2016 YTD 2017 YTD 2016 2016

Interest income 5 3 38 31 49

Other financial income 2 1 3 8 10

Financial income 6 5 41 39 59

Interest expenses -117 -106 -365 -369 -484

Capitalisation of interest - - 3 - -

Other financial expenses -7 -7 -27 -16 -46

Financial expenses -124 -113 -389 -385 -530

Net gain / loss on non-current debt -17 -23 -95 -69 -161

Net gain / loss on operational capital 18 17 1 9 -

Net gain / loss on financial derivatives 23 19 6 -23 -21

Net realised gain / loss on financial instruments 24 12 -88 -83 -181

Net unrealised gain / loss on non-current debt 204 96 380 358 293

Net unrealised gain / loss on operational capital -2 -2 -4 -27 -22

Net unrealised gain / loss on financial derivatives 60 131 106 335 201

Unrealised gain / loss on financial instruments 262 225 482 666 473

Net financial income / loss 168 129 46 238 -179


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Note 4 Tangible assets

30 .09 .2017

Vessels & periodic maintenance

ROVs

Machinery & other equipment

Newbuilds

Total

Net booked value 01 .01 . 10 686 859 378 28 11 950

Additions 119 11 26 602 759

Disposals - -3 - - -3

Reclassification 499 60 -2 -557 -

Depreciation -253 -108 -67 - -427

Impairment -361 - - - -361

Currency translation differences -33 -2 -8 12 -31

Net booked value 30 .09 . 10 658 817 328 86 11 888

30 .09 .2016

Net booked value 01 .01 . 11 999 963 455 7 13 425

Additions 234 13 22 61 330

Reclassification - 36 - -36 -

Depreciation -238 -121 -71 - -430

Impairment -451 - - - -451

Currency translation differences 57 1 -14 - 44

Net booked value 30 .09 . 11 600 893 392 32 12 918

The challenging market conditions for offshore service vessels have continued. In the 3rd quarter 2017, the Group faced lower market values for some of the Group`s vessels, mainly due to changes in exchange rates. Impairment indicators are observed and an impairment test for vessels in the Group has been performed. Impairment tests are performed in line with accounting principles presented in the annual report for 2016. Impairments of NOK 167 million has been recognised in the 3rd quarter of 2017. YTD 2017, the Group has reconised an impairment of NOK 361 million.


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Note 5 Net interest-bearing debt

30 .09 .2017 30 .09 .2016 31 .12 .2016

Non-current interest-bearing debt

Bond loan floating rate 1 368 1 296 1 297

Debt to credit institutions 6 670 7 519 7 208

Total non-current interest bearing debt 8 038 8 815 8 505

Current interest-bearing debt

Bond loan, floating rate 508 - -

Debt to credit institutions 1 097 1 300 1 033

Total current interest-bearing debt 1 605 1 300 1 033

Total non-current and current interest-bearing debt 9 643 10 115 9 538

Net interest-bearing debt

Cash and cash equivalent 1 097 1 137 1 062

Other interest-bearing assets - non-current 69 114 119

Total net interest-bearing debt 8 477 8 864 8 357

Share of debt secured by fixed interest rate30 .09 .2017 Fixed rate Floating rate Total

NOK

Debt to credit institutions 92 % 8 % 100 %

Bond loan 0 % 100 % 100 %

Total NOK 81 % 19 % 100 %

USD


Bond loan 100 % 0 % 100 %

Total USD 78 % 22 % 100 %

CAD


Total CAD 100 % 0 % 100 %

Total debt 80 % 20 % 100 %

A long-term loan has been provided by Eksportfinans and is invested as a restricted deposit. The repayment terms on the loan from Eksportfinans are equivalent with the reduction on the deposit. The loan will be fully repaid in 2020. The cash deposit is included in restricted deposits.

Debt repayment profile Q4 2017 Q1 2018 Q2 2018 Q3 2018

Total current

debt Q4 2018 2019 2020 2021 Thereafter Total

Bond loan - - 508 - 508 - - - - 1 379 1 887

Debt to credit institutions 302 246 302 246 1 097 269 1 811 1 790 871 1 935 7 773

Total repayment 302 246 810 246 1 605 269 1 811 1 790 871 3 314 9 660


20


Note 5 Interest-bearing debt (continued from previous page)

Note 6 Financial instruments and hedging activities

Financial covenantsThe Group’s long-term financing agreements include the following covenants: - The Group shall have available cash of at least NOK 500 million at all times - The Group shall have value-adjusted equity to value-adjusted assets of at least 30% - The Group shall have book equity of at least NOK 3 000 million at all times - The Group shall have positive working capital at all times, excl. short portion of debt to credit institutions - The fair value of the Group’s vessels shall always be at least 100-130% of the outstanding loan amount In addition to the above mentioned financial covenants, the loan agreements are also subject to the following covenants:- The Group’s assets shall be fully insured - There shall not be any change to classification, management or ownership of the ships without the prior written approval of the lenders- DOF ASA shall be the principal shareholder in DOF Subsea AS, and own a minimum of 50.1 % of the shares- DOF Subsea AS shall not merge or demerge activities without the prior written approval of the lenders - DOF Subsea AS shall report financial information to the lenders and Oslo Stock Exchange on a regular basis - The Group’s vessels shall be operated in accordance with applicable laws and regulations

The Group is in compliance with all covenants.

Assets

30 .09 .2017

Liabilities

Assets

30 .09 .2016

Liabilities

Non-current and current portion

Interest rate swaps - cash flow hedges 15 47 7 98

Foreign exchange contracts cash flow hedges 35 16 118 14

Total non-current and current 50 63 125 111

Non-current portion

Interest rate swaps - cash flow hedges 15 22 7 98

Foreign exchange contracts cash flow hedges 8 2 - -

Total non-current portion 23 24 7 98

Total current portion 28 39 118 14

Committed Received

30 .09 .2017

Amount

Committed Received

30 .09 .2016

Amount

Instrument

Foreign exchange contracts, buy NOK NOK 2 116 NOK 2884


21


Note 8 Investments in associates and joint ventures

Entity Proportion of ownership

30 .09 .2017

Joint ventures

DOFCON Brasil AS 50 %

Associated companies

Marin IT AS 35 %

DOF Management AS 34 %

Master & Commander IS 20 %

DOF Subsea Ghana Ltd 49 %

30 .09 .2017

Booked value of investments in associates and joint ventures 31.12.2016 717

Reclassification to subsidiaries -1

Capital increase 8

Share of net income of associates and joint ventures 248

Share of other comprehensive income related to associates and joint ventures -54

Disposal of investments in associates and joint ventures -1

Booked value of investments in associates and joint ventures 30 .09 .2017 918

See also note 1 and note 2.

Note 7 Transactions with related parties

Description of transactions with related parties is given in the Annual Report for 2016. There are no major changes in type of transactions between related parties during the first half of 2017. During the year the Group has had Skandi Chieftain, owned by DOF ASA, on bareboat charter. In addition, the Group has receivables and liabilities towards DOF ASA, Norskan, DOF Management and Marin IT related to operations.

Note 9 Events after the consolidated statement of financial position date

In October, DOF Subsea announced that Raymond P. Semple has been appointed as Chief Operating Officer (COO) for DOF Subsea.

In the Atlantic region, Skandi Neptune was awarded a contract to work on an offsore wind farm, securing 60 days of utilisation plus options in Q4.

The North America region was awarded a contract for the provision of survey, ROV and vessel services in the Gulf of Mexico, securing 135 days of vessel utilisation in Q4 2017 and Q1 2018 for Harvey Deep Sea and Skandi Achiever.

In October Skandi Darwin commenced its charter contract with the Asia Pacific region, and she will commence the Shell Prelude IMR project in Australia ultimo November.


22


Note 10 Shareholder information

Name No . shares Shareholding Voting shares

DOF ASA 61 064 194 51.0 % 51.0 %

FRC Lux Holding Limited 51 126 296 42.7 % 42.7 %

Dolphin Invest 2 AS 7 543 224 6.3 % 6.3 %

Total 119 733 714 100 .0 % 100 .0 %

Note 11 General

This interim report has been prepared in accordance with the standard for interim reporting (IAS 34). The accounting principles and calculation methods applied for the latest published annual accounts have been applied to the quarterly financial report. Amendments and interpretations to the standards which are effective for the financial year beginning on 1 January 2017 are not material to the Group. The Financial Statement is unaudited.

IFRS 15 Revenue from contracts with customers - effective from 1 January 2018The new standard is based on the principle that revenue is recognised when control of goods or service transfers to a customer - the notion of control replaces the existing notion of risks and rewards.

The Group has an ongoing internal project regarding the implementation of IFRS 15 Revenue from contracts with customers. The main purpose of the project is to assess the impact of applying the new standard on the Group’s Financial Statements to ensure a good implementation process. All contracts expected to be ongoing as of year-end are evaluated based on the five step model described in IFRS 15 Revenue from contracts with customers. In addition, all types of contracts within the different revenue streams are evaluated on a general basis to determine the effects of the implementation. As part of the project the Group’s revenue streams has been categorised into the following types: Time Charter revenue and Project revenue.

Time Charter revenue is based on contracts were the Group deliver a vessel (including crew) to the client. During the contract period, the client decides how and when to operate the vessel. Based on existing IFRS this revenue stream is recognised over time, and this will also be the case when IFRS 15 Revenue from contracts with customers is implemented. The Time Charter revenue will be affected by the implementation of IFRS 15 Revenue from contracts with customers and some part might be recognised as lease revenue based on IFRS 16 Leases. Preliminary assessment shows that the timing of the revenue recognition under IFRS 15 Revenue from contracts with customers and IFRS 16 Leases will be the same as under IAS 18 Revenue and IAS 17 Leases.

Project revenue is based on operations were the Group utilise its vessels, equipment and crew to perform tailor made operations on the client’s installations, assets etc. The operations are specifically designed for the client and have no alternative use. Based on existing IFRS this revenue is recognised over time. Preliminary assessment shows that revenue recognition over time will still be the case after the implementation of IFRS 15 Revenue from contracts with customers.

Quality assurance will continue and the Group will make final conclusions during 4th quarter 2017.

A reverse merger was executed during the quarter effective 1 January 2017 between DOF Subsea AS and DOF Subsea Holding AS. This resulted in DOF Subsea Holding AS being absorbed into DOF Subsea AS, thus changes in the shareholders.


23


Despite no change in the main recognition method, the Group has identified that the following areas are likely to be affected: - The application of IFRS 15 Revenue from contracts with customers may result in identification of separate performance obligations, which could affect the timing of revenue recognition in relation to the separate performance obligations.- Certain costs which are currently expensed may need to be recognised as an asset under IFRS 15 Revenue from contracts with customers.- Parts of the Time charter revenue might be recognised as lease revenue based on IFRS 16 Leases instead of IFRS 15 Revenue from contracts with customers. - More comprehensive disclosure requirements

The Group will apply IFRS 15 Revenue from contracts with customers retrospectively with the cumulative effect of initial application recognised as an adjustment to equity as of January 1, 2018. This transition method will only be applied retrospectively on contracts that are not completed by January 1, 2018.

Based on the preliminary assessment the Group do not expect any material impact on the financial statements as a result of the implementation of IFRS 15 Revenue from contracts with customers.

IFRS 9 Financial instruments - effective from 1 January 2018IFRS 9 Financial instruments addresses the classification, measurement and de-recognition of financial assets and financial liabilities and introduces new rules for hedge accounting. The Group do not use hedge accounting as of 3rd quarter 2017, and the Group do not intend to use hedge accounting in 4th quarter 2017. Preliminary assessment shows that the implementation of IFRS 9 Financial instruments will not have any material impact on the Group accounts. Further evaluations and conclusions will be finalised during 4th quarter 2017.

IFRS 16 Leases - mandatory from 1 January 2019The new standard will result in almost all leases being recognised in the statement of financial position, as the distinction between operating and finance leases are removed. Under the standard, an asset (the right to use a leased item) and a financial liability (the obligation to pay rentals) are recognised. The only exceptions of this recognition principle are short-term and low-value leases. The standards will primarily affect the accounting for the Group’s operating leases.

For the Group as a lessee, it is not expected that the implementation of IFRS 16 Leases will have any material impact on the financial statements. As of 30 September 2017, the Group has two vessels on lessee arrangements which are presented as operating leases. Both agreements are for less than 12 months. Furthermore, the Group has and will have lease agreements on office buidlings and warehouses that will be affected by implementation of IFRS 16 Leases. As of end of September 2017 effects of this has not been calculated. At the moment some lease agreements are longer than 12 months and some lease agreements are shorter than 12 months. It is expected that the composition of long- and short-term lease agreements can be changed before implementation of IFRS 16 Leases. For further information about DOF Subsea offices, see Annual Report of 2016.

For the Group as a lessor expected impacts are related to presentation, classification and notes to the Financial Statement.

The Group does not intend to adopt the standard before its effective date, 1 January 2019.

Note 11 General (continued from previous page)


24


Operating profit before depreciation (EBITDA)Operating profit before depreciation (EBITDA) is defined as operating profit, including profit from sale of non-current assets, before impairment of tangible and intangible assets, depreciation of tangible assets and amortisation of contract assets. EBITDA represents earnings before interest, tax, depreciation and amortisation, and is a key financial parameter for the Group. This measure is useful in evaluating operating profitability on a more variable cost basis as it excludes depreciation, impairment and amortisation expenses related primarily to capital expenditures and acquisitions that occurred in the past. The EBITDA margin presented is defined as EBITDA divided by operating income.

Operating profit (EBIT)Operating profit (EBIT) represents earnings before interest and tax, and is a common non-IFRS measure to assess profitability before financial income and loss items and tax expenses.

Net interest-bearing debt Net interest-bearing debt consists of both current and non-current interest-bearing liabilities less interest bearing financial assets and cash and cash equivalents. Non-current receivables from joint ventures are not included in net interest-bearing debt. Cash and cash equivalents will include restricted cash. Current interest-bearing debt includes interest-bearing debt related to asset held for sale. Net interest-bearing debt is a measure of the Group’s net indebtedness that provides an indicator of the overall statement.

Equity ratioEquity ratio is defined as total equity divided by total assets at the reporting date.

Market valueCalculated average vessel value between two independent brokers’ estimates based on the principle of “willing buyer and willing seller”.

Vessel utilisation Vessel utilisation is a measure of the Group`s ability to keep vessels in operation and on contracts with clients, expressed as a percentage. The vessel utilisation numbers are based on actual available days, including yard-stay days for dry-docking, repairs and upgrade/conversion, transits and idle time between subsea/IMR projects and long-term chartering contracts.

Contract backlog Sum of undiscounted revenue related to secured contracts in the future and optional contract extensions as determined by the client in the future. Contract backlog excludes master service agreements (MSAs) within the Subsea/IRM Projects segment. Under the MSAs only confirmed POs are included.

Firm contract backlog Sum of undiscounted revenue related to secured contracts in the future. Secured contracts are contracts signed with clients in the past, covering future delivery of services.

Backlog optionsSum of undiscounted revenue related to optional contract extensions as determined by the client in the future.

Working capitalThe working capital position of the Group is equal to current assets less current liabilities. It is a measure of the Group’s liquidity and efficiency, and demonstrates the Group’s ability to pay its current liabilities.

Note 12 Performance measurement definitions


25


26


Supplemental information

Condensed statement of comprehensive income 5 last quarters

3Q 2017 2Q 2017 1Q 2017 4Q 2016 3Q 2016

Operating income 1 093 1 199 982 1 128 1 232

Payroll expenses -363 -337 -360 -376 -395

Other operating expenses -395 -466 -350 -430 -385

Share of net income of associates and joint ventures -3 3 7 -3 -5

Profit from sale of non-current assets - -4 -1 96 -

Total operating expenses -762 -804 -704 -713 -785

Operating profit before depreciation (EBITDA) 332 396 278 415 447

Depreciation and impairment -352 -233 -288 -396 -352

Operating profit (EBIT) -21 163 -10 19 95

Financial income - 15 8 14 -

Financial expenses -151 -170 -137 -161 -125

Realised gain / loss on financial instruments 24 -64 -47 -106 6

Unrealised gain / loss on financial instruments 260 136 83 -149 219

Net financial income / loss 133 -83 -93 -402 100

Profit / loss before tax 112 80 -103 -383 195

Tax expenses 26 8 -21 -47 -25

Profit / loss for the period 138 88 -124 -430 170

The supplemental information below is presented according to internal management reporting, based on the proportionate consolidation method. Proportionate consolidation method implies full consolidation for subsidiaries, and consolidation of 50% of the comprehensive income and financial position for the joint ventures.


27


Condensed statement of financial position 5 last quarters

Assets 3Q 2017 2Q 2017 1Q 2017 4Q 2016 3Q 2016

Intangible assets 794 797 717 714 714

Tangible assets 16 365 16 857 16 556 16 530 17 072

Financial assets 767 774 814 799 728

Non-current assets 17 926 18 428 18 087 18 043 18 514

Total receivables 1 293 1 235 1 115 1 294 1 439

Cash and cash equivalents 1 208 1 360 1 693 1 189 1 303

Current assets 2 501 2 595 2 808 2 483 2 742

Total assets 20 427 21 023 20 896 20 526 21 256

Equity and liabilities 3Q 2017 Q2 2017 1Q 2017 4Q 2016 3Q 2016

Paid in equity 3 844 3 844 3 844 3 844 3 844

Other equity 2 086 2 002 1 877 1 987 2 370

Non-controlling interests 226 225 227 224 222

Total equity 6 156 6 071 5 948 6 055 6 437

Non-current provisions for commitment 14 21 23 21 19

Other non-current liabilities 11 206 11 921 12 480 11 972 12 154

Non-current liabilities 11 221 11 942 12 503 11 993 12 174

Current portion of debt to credit institutions 1 952 2 035 1 464 1 372 1 606

Other current liabilities 975 981 1 0391 043 1 106

Current liabilities 3 051 3 010 2 444 2 478 2 645

Total liabilities 14 271 14 952 14 947 14 471 14 819

Total equity and liabilities 20 427 21 023 20 896 20 526 21 256

Key figures

3Q 2017 2Q 2017 1Q 2017 4Q 2016 3Q 2016

Profit per share (NOK) 0.12 0.74 -1.04 -3.59 1.42

EBITDA margin 28 % 33 % 28 % 37 % 36 %

EBIT margin -2 % 14 % -1 % 2 % 8 %

Return on net capital 2 % 1 % -2 % -7 % 3 %

Book value equity per share (NOK) 51.41 50.70 49.68 50.58 53.76

Value-adjusted equity per share (NOK) 58.60 60.21 59.22 61.25 65.00

Net interest-bearing debt (NOK million) 11 914 12 529 12 206 12 041 12 002


28

DOF Subsea vessels

DOF Subsea currently owns one of the largest fleet of high-end construction vessels (including newbuilds) in the world. These assets offer a versatile, new generation of high-powered and purpose-built vessels with broad offshore capabilities.

Owned vessels

Skandi Acergy

Geograph Geoholm Geosea

Geosund

Skandi Carla Skandi Constructor

Skandi Achiever

Skandi Hawk

Skandi Africa Skandi BuziosSkandi Açu


29

Skandi Skansen Skandi Patagonia

Skandi Vitoria

Skandi Salvador Skandi SevenSkandi Singapore

Skandi Neptune Skandi NiteroiSkandi Hercules

Skandi Vinland


30

DOF Subsea vessels (continued)

DOF Subsea invests in the next generations of vessels. An ambitious Newbuild program utilises new technology and smart engineering to ensure efficient and environmentally-friendly operations in the future.

Newbuilds in joint ventures and associated companies

Chartered-in vessels

DOF Subsea charters in vessels on short and long-term contracts based on operational needs, building greater flexibility and a complementary fleet mix to meet our clients’ subsea challenges.

Skandi Olinda Skandi Recife

Skandi ChieftainHarvey Deep Sea

AUSTRALIA

DOF Subsea Australia Pty Ltd5th Floor, 181 St. Georges TcePerth, Wa 6000 AUSTRALIAPhone: +61 8 9278 8700Fax: +61 8 9278 [email protected]

DOF Management Australia5th Floor, 181 St. Georges TcePerth, Wa 6000 AUSTRALIAPhone: +61 3 9556 5478Mobile: +61 418 430 939

BRAZIL

DOF Subsea Brasil Serviços LtdaMacae address:Rua Fiscal Juca, 330 Q: W2 – L: 0001 Loteamento Novo Cavaleiros Vale Encantado – Macaé/RJ BRAZIL - CEP 27933-450Rio address:Rua Lauro Muller, 116 Salas 2802 a 2805,Torre do Rio Sul - Botafogo22290-160, Rio de Janeiro, R.J.,BRAZIL - CEP: 27910-000Phone: +55 22 2123-0100Fax: +55 22 [email protected]

CANADA

DOF Subsea Canada26 Allstone Street, Unit 2Mount Pearl, NewfoundlandCANADA, A1N 0A4Phone: +1 709 576 2033Fax: +1 709 576 [email protected]

SINGAPORE

DOF Subsea Asia Pacific Pte Ltd460 Alexandra Road# 15-02PSA Building, 119963SINGAPOREPhone: +65 6561 2780Fax: +65 6561 [email protected]

GLOBAL HQ

DOF Subsea ASThormøhlensgate 53 C5006 Bergen NORWAYPhone: +47 55 25 22 00Fax: +47 55 25 22 [email protected]

NORWAY

DOF Subsea Norway ASThormøhlensgate 53 C5006 Bergen NORWAYPhone: +47 55 25 22 00Fax: +47 55 25 22 [email protected]

SEMAR ASOksenøystein 121366 Lysaker NORWAYPhone: +47 67 12 40 06Fax: +47 67 12 40 06 [email protected]

DOF Management ASAlfabygget5392 StorebøNORWAY

Thormøhlensgate 53 C5006 Bergen NORWAYPhone: +47 56 18 10 00Fax: +47 56 18 10 [email protected]

ANGOLA

DOF Subsea AngolaBelas Business Park-Talatona Edificio Bengo, 1º AndarSala 106/107, LuandaRepublic of AngolaPhone: +244 222 43 28 58Fax: +244 222 44 40 68Mobile: +244 227 28 00 96 +244 277 28 00 [email protected]

DOF Management Pte Ltd460 Alexandra Road# 15-02PSA Building, 119963SINGAPOREPhone: +65 6868 1001Fax: +65 6561 2431

UNITED KINGDOM

DOF Subsea UK LtdHorizons House, 81-83 Waterloo Quay Aberdeen, AB11 5DE UNITED KINGDOMPhone: +44 1224 614 000Fax: +44 1224 614 [email protected]

DOF Subsea S&P UK LtdHorizons House, 81-83 Waterloo Quay Aberdeen, AB11 5DE UNITED KINGDOMPhone: +44 1224 614 000Fax: +44 1224 614 [email protected]

CSL EngineeringHorizons House, 81-83 Waterloo Quay Aberdeen, AB11 5DE UNITED KINGDOMPhone: +44 1224 285 566Fax: +44 1224 285 [email protected]

DOF (UK) LtdHorizons House, 81-83 Waterloo Quay Aberdeen, AB11 5DE UNITED KINGDOMPhone: +44 12 24 58 66 44Fax: +44 12 24 58 65 [email protected]

USA

DOF Subsea USA Inc5365 W. Sam Houston Parkway Suite 400, Houston, Texas 77041, USAPhone: +1 713 896 2500Fax: +1 713 726 [email protected]

DOF Subsea ASThormøhlens gate 53 C

5006 BergenNORWAY

www.dofsubsea.com

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Q3 2017 - DOF Group Sub/IR/2017/DOF Subsea Quarterly Finan… · DOF SUBSEA| Financial Report Q3 2017 5 NOK million 3Q 2017 3Q 2016 Change % Operating income 899 1 132 -21% EBITDA